Customers on top

Consumers, I argued, are the real “boss” of any business. It is they who decide which businesses succeed, and which ones will fail, by virtue of the purchasing decisions they make. Those enterprises that meet a particular need, or satisfy some unmet demand—and are able to turn a profit doing so—live to see (and sell) another day. Those that can’t, or don’t, are not likely to be long for this world.

In other words, customers are the ones truly in charge – not anyone else. Or, as former Wal-Mart CEO Sam Walton once put it:

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”[1]

So for this week’s post, I’ll do what many organizational theorists and management scholars (and economists) seem reluctant to do, oddly enough. I’ll draw an organization chart that includes the customer….which, as you shall see, has some perhaps unexpected consequences.

My hierarchy, my hierarchy

Organization charts come in all shapes and sizes, but typically they look something like this:

Here’s how to read one:

The boxes on the diagram represent individual workers, or specific organizational roles – On most organization charts, each box corresponds to a particular job or organizational position, which in turn is assigned to a particular employee. So whether you’re a sales associate, customer service representative, engineer, or even the CEO, a box representing you, and the organizational role you fulfill is likely to be found somewhere on the diagram. Furthermore, boxes representing workers performing similar tasks, or who are engaged in closely related work, are typically grouped together.

Organizational authority increases as one moves up the diagram – The higher up one’s box is positioned, the more organizational authority that person is considered to have according to most organization chart. Consequently, the CEO or business owner (or board of directors) is usually to found at the very top of the diagram, while those employees with the least authority—often referred to as frontline employees (sales associates, customer service representatives, engineers, or any other non-management position)—are to be found at the very bottom.

The lines connecting the boxes are referred to as “lines of authority,” and describe who reports to who – Managers are located directly above those they manage on these diagrams, and their boxes are typically connected to each other by an uninterrupted solid line. So, for example, according to the chart shown above, Manager A manages Employees #1 and #2. He or she might also be referred to as their “boss” or “supervisor” as terms are often used interchangeably with “manager.” And those employees are considered to be Manager A’s “subordinates.” Similarly, Employees #3, #4, and #5 report to Manager B.

That’s it for the basics – that’s all you really need to know to understand and navigate a traditional, pyramid-shaped organization chart. However, a couple of other organizational concepts that have come to be associated with these diagrams are probably worth mentioning as well:

Span of control refers to the number of employees who report to any given manager. So according to the chart shown above, Manager A has a span of control of two (Employees #1&2), and Manager B’s is three (Employees #3,#4&#5). This value is often viewed as a crude estimate of a manager’s organizational influence.

Unity of command stipulates that no employee be assigned more than one supervisor. This requirement is thought by many to reduce organizational indecision, as well clarify organizational purpose, in that is presumable eliminates the possibility of receiving conflicting directives from multiple bosses. While many organizations (and organization charts) adhere to this requirement, there are exceptions.[2]

Chain of command is considered helpful in the resolution of organizational conflict. It is determined by tracing upwards on the diagram from a given employee’s box while at the same time being sure to pass only through those boxes connected by solid lines. So, for instance, Employee #1’s chain of command is: #1-Manager A-CEO, according to the chart shown above. Employee #3’s is #3-Manager B-CEO. Here’s how it might be applied: Let’s say Employees #1 and #3 disagree on how to best accomplish some organizational objective, or shared task. The organizational actor considered to have the authority to resolve this dispute would be the first individual common to both Employee #1 and #3’s chains of command. In this particular instance, that person is the CEO.

Okay – so let’s get to it at last.

Let’s add customers/consumers to one of these diagrams.

Sovereignty, above all

Given all of the attention paid to the idea of consumer sovereignty, it is perhaps by now apparent to you that customers belong at the very top of the diagram, and in the position of utmost authority.

Again, consumers not only determine which goods and services are produced by the market, and at what price. They also decide which businesses succeed, and which ones will fail as a consequence of the purchasing decisions they make. Those organizations that are able to meet a particular demand, or fulfill some unmet market need—and can turn a profit doing so—will prosper. Those that can’t, won’t.

Less obvious is to whom the customer should be “connected.” That is to say, if a line (or lines) of authority are to be drawn connecting the customer to the remainder of the organization, it remains to be seen to whom that line (or lines) should be drawn.

There are really only two possible options to consider here, neither of which is ideal:

(1) The CEO

To be sure, this arrangement does have a certain aesthetic appeal. It’s simple, straightforward, and reflects the idea that everyone, from the CEO on down, “reports to” the customer. Sam Walton would probably approve.

What it does not do, however, is offer a very accurate picture of what might be considered “normal” organizational function.

Consider it: At most for-profit enterprises, only very rarely does the CEO interact directly with the customer…if ever. Instead, CEOs typically concern themselves with “big picture” organizational issues – such as profitability, cash flow, product development, marketing, etc. When it comes to dealing with individual customers—that is, answering their questions, addressing their concerns, and finalizing individual sales—typically it is a frontline employee who engages in such actions, and not the CEO or other members of management

The above chart does not reflect this. It suggests that CEOs would be expected to interact directly with individual consumers, not the frontline. And that’s hardly true for most businesses – especially those in the retail sector.

Which leaves the other option:

(2) The frontline

Now frontline employees are in fact connected to the customer, thus addressing the concern just described. But this arrangement is also problematic. In order to make this connection, those lines of authority are forced circumnavigate the rest of the diagram, resulting in a decidedly awkward arrangement.

But this criticism is more than one of appearance. As drawn, the diagram now invokes a sort of double standard when it comes to unity of command: Frontline employees have been assigned two “bosses”—customers and a manager—whereas everyone else in the organization reports to just one. In order for this arrangement to have any validity then, this inconsistency would need to be accounted for in some way.

Clearly then, neither of these two possibilities is particularly satisfying. Nor is moving the customer to the bottom of the chart an option, as tempting as that might be. Doing so violates the principle of consumer sovereignty, the acknowledgement of which, need I remind you, was the point of this exercise. And so, given the absence of any other obvious alternative, it is perhaps not difficult to understand why so many businesses choose to omit the customer from their organization charts altogether.[3]

Tear it up

There is, of course, one other possibility.

Starting with customers on top, those sales associates, customer service representatives, and other frontline employees might be positioned directly beneath the consumer. Next, these two sets of boxes could be connected via lines of authority. Consumer sovereignty, check. Customer-frontline interactions, check.

As for management…well, the only remaining option is to position managers below those they manage, like this:

Now, of course, everyone from the CEO to the frontline “reports to” the customer (either directly or indirectly) as Sam Walton would probably have liked. This arrangement also reflects more normal, routine organizational function in which individual frontline employees attend to customers’ needs – not managers, management, or the CEO.

But what are the implications for management?

This diagram seems to suggest that employees are “the boss” of their managers – that managers should listen to, and then do what their employees tell them to do, not the other way around. And the CEO, according to this configuration has lessauthority than anyone else in the organization, not the most. That can’t possibly be right.